Super funds defend controversial weapons holdings
Several major superannuation funds such as UniSuper, Aware Super, and Equip Super continue to invest in global weapons companies despite growing concerns among members, particularly as the Israel-Hamas war escalates.
This includes France's Thales Group, US-based Honeywell International and Lockheed Martin, the UK's BAE Systems, and Israel's Elbit Systems - public companies that produce defence intelligence and weapons-related solutions.
For the period ending June 2023, Aware's Accumulation Growth option, had some $24.7 million in BAE and $6.4 million Honeywell. It held $613,000 in Thales and $137,000 in Elbit.
In a $1.06 billion UniSuper portfolio, $13.9 million is in Honeywell comprising 1.21% of the total. An $8.5 million holding in Lockheed Martin made up 0.74%.
Equip Super's MySuper option, for example, had as much as $2.5 million in Honeywell, $1 million in Lockheed and as little as $60,000 in Elbit.
Australian Retirement Trust, Equip Super and Catholic Super, Mine Super and TWUSUPER all had holdings in three or more of the five companies.
Out of the sample, the $100 billion Hostplus is the only fund that does not invest in any of the defence stocks.
Elbit has been awarded a series of contracts from the Israeli Defence Force (IDF) which it said was "an aggregate amount that is material to the company" since the Hamas attack on October 7, 2023. This left about 1200 civilians dead (revised from the initial 1400 estimate), according to US research institute the Foundation for Defense of Democracies, and 239 taken as hostages.
In retaliation, the IDF has killed 30,676 Palestinians in the Gaza Strip - of which 12,040 are infants and children - according to Geneva-based non-profit Euro-Med Human Rights Monitor.
Last December, major news outlets reported that US President Joe Biden bypassed Congress twice to expedite emergency weapons sales to Israel.
The most recent funding was for US$147.5 million for fuses, charges and prime, according to the Associated Press, while US$106 million was approved to spend on 14,000 rounds of tank ammunition.
"The United States is committed to the security of Israel, and it is vital to US national interests to ensure Israel is able to defend itself against the threats it faces," the State Department said in the article.
Many super funds are guided by ESG policies that screen controversial weapons for actively managed investments - but not for passive strategies.
TelstraSuper, for example, maintains a general investment exclusion for manufacturers of controversial weapons that it considers as material activity for the entity.
"Controversial weapons manufacture means involvement in the production of anti-personnel mines, biological and chemical weapons and cluster weapons and the exclusion is limited to whole weapons systems or components developed for exclusive use in controversial weapons," a TelstraSuper spokesperson said.
Holdings in Elbit, Thales, BAE Systems, and Honeywell are held across a mix of active and passive equity strategies that account for less than 0.01% of its AUM.
"None are on our exclusion list as they do not contravene the above-mentioned definition," the spokesperson said.
TelstraSuper's holding in Elbit is less than 0.001% of total AUM - which is held in a passive equity strategy that replicates the MSCI World Index.
Similarly, AustralianSuper has less than $150,000 sitting Elbit in a passive index investment.
"To enhance member returns over the long term, AustralianSuper invests in a globally diversified investment portfolio ... Assets are monitored for ESG trends and emerging risks to identify issues," an AustralianSuper spokesperson said.
As at January 19, Brighter Super held $7.6 million in BAE, $879,000 in Elbit Systems, $11.7 million in Honeywell, and $2.1 million in Thales via index-based international shares mandates.
"The holdings in these companies are held through two externally managed index-based international shares mandates. Brighter Super's holdings of about $22 million in these companies represent 0.07% of the fund's total holdings," a Brighter Super spokesperson said.
"Brighter Super generally prefers active stewardship over asset disposal. We believe in promoting a just transition through advocating for activities and investments that promote ESG principles."
It does not hold shares in Lockheed Martin because it is excluded under the fund's ESG policy on cluster munitions and anti-personnel landmines.
Last December, Australian Greens senator David Shoebridge called out the Future Fund for investing more than $600 million in global weapons companies.
Documents Shoebridge obtained dated October 31, 2023 show the Future Fund's direct holdings in 30 weapons and aerospace companies that include Thales, Lockheed Martin, and BAE.
Nearly $500,000 is invested in Elbit despite the Future Fund being banned from investing in it "since at least 2021 due to 'exclusions related to military weapons-related Conventions or Treaties ratified by Australia'," Shoebridge said.
Shoebridge wants Labor to introduce mandatory ethical investment rules for the Future Fund that "must absolutely include a prohibition on investing in weapon manufacturers".
"The Future Fund's board needs to explain how it continues to invest in Elbit Systems despite the publicly announced direction it gave to withdraw those funds because of Australia's international legal obligations," he said.
In a statement, a Future Fund spokesperson said: "The Future Fund has a clear framework for exclusions published on its website and does not invest in companies on its exclusions list."
"While Elbit had previously been excluded from the portfolio, it was removed from the exclusions list in April 2023 based on our regular review process and consideration of expert third-party advice."
Meanwhile, its counterpart, the New Zealand Superannuation Fund (NZSF), has been excluding investments in Elbit since 2012.
The world's largest sovereign wealth fund, Norway's $2.4 trillion Government Pension Fund Global, has excluded Elbit since 2009 for reasons of "other particularly serious violations of fundamental ethical norms". It has excluded Honeywell for the last 18 years for its "production of nuclear weapons".
On February 24, 2022, major super funds were quick to divest from Russian companies when it invaded Ukraine.
Two years on, Russia's continuous attacks have killed 9614 Ukrainians as at September 2023, according to the United Nations, while its destruction of civilian infrastructure resulted in over 6.5 million refugees.
ART, AustralianSuper, Hostplus, and Cbus were the first of many to pledge full divestment of Russian assets. Active Super, on the other hand, landed in hot water last year for greenwashing claims, allegedly telling members it divested its Russian investments when it did not do so.
Today, the International Court of Justice (ICJ), the UN's top court, will issue a ruling on Ukraine accusing Russia of falsely claiming that the former was committing genocide to justify its invasion and in turn will stop it.
On January 26, the same court issued Israel ruling orders that include taking "all measures to prevent the commission of genocide to Gaza" and "take immediate and effective measures to address adverse conditions to life in the Gaza Strip".
Defence stocks tend to rally at the onset of a war. Since Russia's invasion, share prices of Thales and BAE soared 47% and 80% respectively.
Deakin University research reveals that since the Russia-Ukraine conflict, investors - including super funds - have shifted their money into the defence sector as they recalibrate ethical considerations and chase increased financial incentives.
Associate professor and researcher Harminder Singh said there was a time when the investment community tried to avoid stocks in defence companies due to ESG concerns.
"But the Russia-Ukraine war has meant many countries are moving to invest in their sovereign defence capabilities. Countries want to be able to defend themselves in case there are wider ramifications from the conflict," he said.
"This makes stocks in the defence sector more appealing for investors. With more government money pouring in, there are more investment opportunities and the potential to earn greater stock returns."
Pressure on super funds to rethink their exposure to Elbit is bubbling at the member level.
UniSuper members are currently running a campaign on Megaphone to force the fund to divest Elbit. It has garnered 736 out of 800 signatures.
A letter sent by HESTA to a concerned member seen by Financial Standard states that the fund "monitors and assesses geopolitical events, risks and their potential impacts on our portfolio."
HESTA said it had a small holding at the end of June 2023 but no longer does. The changes, HESTA said, will be reflected in the 31 December 2023 period to be published in March.
HESTA confirmed this to Financial Standard. It also said: "All of HESTA's investment options are covered by portfolio-wide restrictions that exclude investment in any company that manufactures whole weapon systems or components developed for exclusive use in cluster munitions, anti-personnel mines, biological or chemical weapons."
"The Sustainable Growth investment option does not invest in companies that derive 5% or more revenue from military weapons production, civilian firearm production or retailing."
Brighter Super has received seven member queries in relation to Elbit.
UniSuper evaded a member's specific concerns about its exposure to weapons companies that might be arming the Israeli military.
The fund, instead, said that it recognises that some of its members have concerns about ethical investments and that ethical investing "aims to integrate personal values with investment decisions - but that can mean different things to individual investors".
UniSuper referred the member to its sustainable investing policy.
Other members are raising concerns about their super fund profiting from companies operating within the Israeli-Hamas war region.
Aware Super wrote to a concerned member that as a global investor, its "investment portfolio does have a very small exposure, around 0.1% of our portfolio, to a number of companies with operations, or providing services supporting Israeli settlements, in the Occupied Palestinian Territories. The majority of that investment is held in the global companies Expedia, Airbnb, Motorola Solutions, and Booking.com."
Ultimately, Aware said it has "no immediate plans to divest from these companies".
UniSuper, Aware Super, Prime Super, Mine Super and TWUSUPER, Equip Super and Catholic Super, and Hostplus declined to comment for this article.
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